In the three and a half years since the U.S. unemployment rate peaked at 10 percent, the labor market has undergone two significant changes. First, about 7.5 million people dropped out of the labor force—about 25 percent more than the number who found a job in the same period. Around one third of those who stopped looking for work were retiring baby boomers, the first of their generation to leave the workforce en masse; the rest younger or disabled workers unable to find suitable jobs.
The second, interrelated phenomenon has been the unprecedented surge in long-term unemployment, defined as the number of workers unemployed 27 weeks (about six months) or longer. While that number has fallen by 2 million from its 2010 peak, when 6.7 million Americans counted themselves among the long-term jobless, today's long-term unemployment rate remains higher than at any time in the past 70 years. And because the Bureau of Labor Statistics only counts as unemployed people who have “actively looked for work in the prior 4 weeks,” it is safe to assume the effective long-term unemployment rate is in fact much higher, including a sizable number of discouraged workers who regularly move in and out of the statistical labor force.
Economists worry that the unprecedented elevation of the long-term unemployment rate risks becoming a structural, rather than cyclical problem. Put simply, people who are out of work six months or longer may begin to lose skills that would make them attractive to employers. So even if the jobs market improves—as it has in the last year—workers' inability to find work may itself become a factor in their unemployability.
This stigma is real, and severely damaging to the 4.6 million Americans who have been looking for work since at least October, 2012. As Matthew O'Brien reports at The Atlantic, recent research finds that employers appear to be automatically disqualifying applicants who haven't held a job in the last six months. In one study, Rand Ghayad, a visiting scholar at the Boston Federal Reserve Bank, sent out 4,800 fake résumés to 600 job openings, all with similar educational backgrounds and racially ambiguous male names. The only variables he adjusted were how long the applicant had been out of work, how often they had switched jobs, and whether they had any industry experience.
The results, illustrated in the chart below, are profoundly disturbing. Employers preferred to hire an applicant with zero industry knowledge (blue dot), provided they had been unemployed only briefly, rather than a qualified and experienced worker who had been out of work six months or longer (red dot):
The implication, according to Ghayad's study, is that employers are using long-term unemployment itself as a proxy for employability—presumably using the applicant's previous rejections as a negative signaling mechanism from other prospective employers, or else making some kind of value judgment about their skills or work ethic.
So far, efforts to reverse this trend have yielded mixed results. Several states are considering legislation to protect the long-term unemployed from discriminatory hiring practices, like the New York City bill passed last week over Mayor Michael Bloomberg's veto. But there's little evidence that legislation alone will have much effect: Wonkblog's Brad Plumer points out that New Jersey's own anti-discrimination law has resulted in only one citation and a fine of $1,000 since it was adopted in 2011.
The Obama administration has suggested putting more money into jobs training programs, but it's unclear how effective they would be if employers are already indicating they would rather hire recently-employed but inexperienced workers over the experienced long-term unemployed. A targeted employment tax credit, another administration proposal, may have fared better, but died a quiet legislative death in 2011 as part of President Obama's failed American Jobs Act.
The last time so many Americans were unemployed for so long was the Great Depression, an economic slump that only ended with the United States' entry into WWII—a coordinated effort that included massive government spending, large-scale industrial mobilization, and the removal, through volunteering or conscription, of some 10 million working-age men from the labor force. That's not to say, as economist Paul Krugman has joked, that the U.S. economy would benefit from an intergalactic war. But it does suggest that we need a far more interventionist public policy to help the long-term unemployed find jobs. If the private sector refuses to hire millions of qualified workers, the federal government can and should act as an employer of last resort: ASCE knows we could use a few new bridges.